Notes on Negotiation Written by Marty Latz, Latz Negotiation Institute
The major deal points for the sale of my client’s company were set. But we still needed to negotiate terms and conditions (Ts and Cs). And both sides needed it done quickly.
As a result, my client insisted that we send a draft “final” contract, with very little room to concede on the Ts and Cs. I strongly advised against this, recommending that our lawyers build in at least a few significant concessions.
We can still close expeditiously, I advised, but starting too close to our end goal would be highly counterproductive. The other side’s lawyers need the ability to go to their client, the private equity (PE) group buyer, and illustrate their value by highlighting points we conceded. Give them some perceived “wins,” I said.
He disagreed. And since he was the client, the close-to-final contract was sent. The draft we got back had even more redlines and counters than even I had predicted. The junior partner at the PE group’s law firm apparently felt the need to prove his chops to his senior partner.
Now what? If we responded in kind, it would lead to an extended negotiation. But accepting most of their changes also presented a serious problem.
Instead, we had our investment banker contact the PE group partner, who then contacted their law firm’s senior partner – who sent us a revised and much more reasonable response. The lesson? My 5th Key to Negotiating Contract Terms...
5) Build room to move into your initial draft (your first offer).
The first four, from my previous two columns are: 1) Keep your long-term goals front-and-center; 2) Find out the parties’ underlying interests for each term or condition; 3) Usually keep your leverage in your back pocket; and 4) Focus on “fair and reasonable” independent standards and benchmarks.
Here are my final four.
6) Strategically plan your offers and concessions
I have an energy client that developed a spreadsheet with 10 variations of every significant T and C in each of its standard contracts. It includes for each provision:
• where they usually start;
• where they want to end (their goal),
• its priority/importance;
• if and where it represents a walk away; and
• where their counterpart usually starts, etc.
This strategic planning document empowers its in-house counsel to consistently and strategically evaluate when, where and how much to concede for each T and C.
Other offer-concession strategies to consider in contract negotiations include:
• sequencing the issues so the parties can build momentum (don’t request big concessions on all the initial issues);
• packaging and negotiating multiple related terms together (not addressing each T and C separately);
• negotiating the final two or more issues together, at least one of which should result in a concession from you and one from your counterpart (ensuring everyone feels good at the end).
7) Control the agenda with your first draft
It’s super easy these days to revise and redline anyone’s initial draft. But it’s still advantageous to work off your first draft as a) it helps you control the agenda and order of issues, b) you can more easily identify, organize, and wordsmith exactly what you understand the parties to want, and c) your counterpart may decide some changes are too minor to address, and this can add up.
8) Beware of good cop/bad cop
“I’d love to agree to that provision, but my client [or boss] just won’t agree.” I’m the good cop here, and my client or boss is the bad cop. This is fairly common in contract negotiations. As long as it doesn’t negatively impact your behavior, ignore it. Of course, if you use this – make sure your client or boss knows about it. What you say about them impacts their reputation!
9) Consider moving up the chain if you reach impasse
While there are many impasse-breaking strategies (here are my Top Ten), moving up the chain to your boss/client/senior partner is often particularly effective in contract negotiations.
10) Ensure the final contract accomplishes your goals and exceeds your Plan B
“We’ve spent a ton of time and money negotiating these terms, and it would be a total waste if we can’t finally close the deal.” This statement reflects many parties’ strong psychological feelings at the end of a long negotiation.
But your feelings about the time and effort expended should NOT determine whether you sign. Instead, evaluate: a) whether the final contract accomplishes your goals and interests, and b) if it’s better than your Plan B. Your final review should consider these grounds – and only these.
If it’s not better than your Plan B, walk away. Sign if it is.
Latz’s Lesson: Effectively negotiating Ts and Cs often requires building in some room to move, strategically planning your offers and concessions, setting the agenda with your first draft, and considering good cop/bad cop, moving up the chain, and even whether to close.
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Marty Latz will be in-person for the annual Gain the Edge Seminar (6 CME / 6 CLE). Join us, Thursday, December 5 Live In-Person at the ICLEF Conference Center, Indianapolis or via Live Webcast.
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Marty Latz is the founder of Latz Negotiation Institute, a national negotiation training and consulting company, and ExpertNegotiator, a Web-based software company that helps managers and negotiators more effectively negotiate and implement best practices based on the experts' proven research. He is also the author of Gain the Edge! Negotiating to Get What You Want (St. Martin’s Press 2004). He can be reached at 480-951-3222 or Latz@ExpertNegotiator.com
ICLEF • Indiana Continuing Legal Education Forum, Indianapolis, IN • Premier Indiana CLE
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